The Specter of Exclusion Raised by Rulings by the Departmental Appeals Board

Exclusion from Medicare and Medicaid (and all federally funded health programs) is a serious penalty.

Federal law provides that individuals or entities may be excluded from participation in any health program that receives federal money. This includes Medicare or Veterans Affairs (VA) hospitals and state programs such as Medicaid.

One might say that exclusion is a penalty similar to an Amish shunning. It pushes the provider out into the cold, unable to work in most places. The provider is placed on a public “exclusion list” that all facilities are required to check before hiring. This list also is monitored by commercial insurance companies.

Litigation regarding exclusion is conducted in the Departmental Appeals Board at the U.S. Department of Health and Human Services (HHS). The Board publishes its decisions, and from these it is possible to ferret out a few rules of the road. A surprising number of cases involve fines against convenience stores that sell cigarettes to minors. With penalties of only $500-$1,000, one wonders how it was feasible to litigate these cases at all.

Sadly, there are too many cases of skilled nursing facilities (SNFs) being fined or shut down because of abuse of their patients, usually helpless elders. It was a shock to see how many suppliers of medical equipment are kicked out of the program because on the day an inspector showed up, they were not open during their posted business hours, or because they had moved but failed to provide notification.

A great variety of cases lead to exclusion. Many concern doctors or registered nurses excluded from Medicare and Medicaid because of loss or suspension of their licenses in the state where they work. If a license is suspended in one state and the provider goes to another state and gets a license, it will remain excluded. Being re-licensed does not override that one's license was suspended. A number of cases involve healthcare providers who argue that the number of years they are excluded is too great, but this generally is not considered reviewable.

The harshest penalties come from those excluded because of being convicted of a felony. Exclusion is mandatory after a felony conviction “relating to” healthcare fraud or controlled substances. These include actions such as “unlawful manufacture, distribution, prescription, or dispensing of a controlled substance;” “criminal sale of a prescription for a controlled substance;” forging prescriptions for narcotics; or “unlawfully writing multiple prescriptions for Oxycodone in exchange for direct cash payments of $200 per prescription, to name a few examples. Any conviction for patient abuse or program-related crimes also triggers exclusion.

From these various cases, it is possible to derive a number of lessons regarding administrative law and how it is applied to the facts. We have picked out below a few aspects of the rulings that deserve note.

Nolo Contendere

A plea and acceptance by the court of nolo contendere to an offense qualifies as a provider being “convicted” within the meaning of section 1128 of the Act, thus triggering mandatory exclusion.

“Good Faith” Billing Mistakes or Reliance on Billing Expert

No excuse allowed. Proof of culpability is not needed to justify revocation under 42 C.F.R. Sec 424.535(a)(8), which “does not distinguish between false claims that are filed accidentally and those that are fraudulent or filed with willful disregard of their truth.” It does not matter who filed the wrong claims or why. The provider faces strict liability, and this liability can pierce the corporate veil of a LLC and rest solely on the individual provider.

Community Service and Character References

Some attempt to get penalties reduced by showing that they are well-respected, or they provide extensive service to special communities, such as persons in extreme poverty. No go. This information is considered irrelevant. Per one key decision, “the regulations require me to exclude irrelevant or immaterial evidence from the record … the only issues I may decide in this case are whether the IG had a basis for excluding petitioner and, if so, whether the length of exclusion imposed is not unreasonable. . . . letters concerning petitioner’s character are not relevant.”

Hearsay and FRE 403

Documents containing hearsay may be included in hearings, which are not bound by federal rules of evidence. There is no automatic hearsay exclusion rule. It is yet to be tested how FRE 403 may be applied. The rulings suggest that although the trier of fact may consider such argument, they are not bound by the FRE.

Mitigating Factors

Many bring up that they have paid restitution for the problem, and suggest this is a mitigating factor. No go. Per one decision, “regulations direct me to consider the entire amount of financial loss ‘regardless of whether full or partial restitution has been made.’” The mitigation and aggravation factors are carved in statute, and the rulings seem never to step outside their boundaries. In one case, the wrongdoer had passed away, the company had paid restitution, and the provider desperately needed to continue operating in order to pay off the penalty. None of those facts were considered mitigating factors.

We have reviewed a number of interesting features in the litigation of the Departmental Appeals Board. It is possible many appeals never would have been filed if past rulings had been considered. We recommend that any counsel should be aware of these rulings before advising their client on the best litigation strategy.

About the Author

Edward M. Roche, Ph.D., J.D. is the director of scientific intelligence at Barraclough NY LLC., a firm that provides litigation support and expert testimony for healthcare providers who have been audited.